Longtime reader/commenter Jonah Norason of Two Way Roads sent us this detailed history of The Galleria in Houston, Texas, that we had to share with you. I haven’t been down to this one myself (though Prangeway has), but after looking at these photos I’m pretty tempted to try and get down to the Lone Star State sooner rather than later. Thusfar, the only place in Texas I’ve even been to is Amarillo! Anyway, thanks to Jonah for all the great swag–the remainder of the words and photos on this post are his.

“The Galleria is THE largest mall in Texas and 7th largest in the United States. It’s a massive beast buried in the heart of Uptown Houston. There is so much about this mall, it’s hard to know where to start. Inspired by Galleria Vittorio Emanuele II, The Galleria opened in 1970 as a three-level mall with an ice rink, a hotel, an office building, and a Neiman Marcus. Up until this time, ice rinks in malls were not uncommon, but a mall centered around an ice rink was unheard of. This was the first. During this time, competition included but was not limited to: Sharpstown Mall, Memorial City Mall, and Gulfgate Center.

“But the Galleria expanded. Around 1977, the Galleria was expanded with an expansion entitled Galleria II. Galleria II featured upscale San Antonio retailer Frost Brothers and Lord & Taylor.

“Marshall Field’s was added in 1979, adding a fourth anchor to the mall. Then, in 1986, a third addition was added, entitled Galleria III. Galleria III was interesting because it did not connect to the main mall concourse (you had to cut through Marshall Field’s to get to it) and added one anchor: Macy’s. This was a real Macy’s store, one that was actually opened by the original R.H. Macy company (as opposed to Federated). Today, that’s the only “real” Macy’s left in Houston.

“In 1996, Marshall Field’s pulled out of the Texas market. This was not the only Texas mall affected, it included Town & Country Mall as well. In the Galleria, the store was replaced by Saks Fifth Avenue.

“In March 2003, the fourth addition to the Galleria was finished and the mall embarked on yet another renovation. This was Galleria IV. It featured a very upscale Foley’s and Nordstrom. The Foley’s addition was somewhat ironic, as Foley’s had been a Houston-based department store for years and it had also seemingly been in talks with the Galleria forever to make it happen.

“But change was on the way. In 2005, Lord & Taylor pulled out of the Texas market for good and closed their store. Furthermore, in 2006, a tragic incident happened. The Houston-based Foley’s was folded into Macy’s corporate and the Foley’s stores, which included not only the vast presence it had in Dallas and Houston, but the entire Texas area, as well as areas in New Mexico, Colorado, Oklahoma, and Louisiana, to become simply “Macy’s”. At the Galleria, this caused the older, original Macy’s to be redubbed “Macy’s at Sage”, referring to the street it was facing.

“The former Lord & Taylor was partially demolished and redeveloped into a stunning addition featuring upscale stores and restaurants. This included a two-story Borders store. This addition has been informally named “Galleria V”, but it’s not a true addition since the other Gallerias did not replace anything and were entirely new wings with new anchors.

“To really understand the unique layout of the mall, you’d have to look at Simon’s official map that they made for the Galleria or this Google Maps photo. In other words, there’s four distinct sections of the mall, as illustrated by these pictures taken in March 2008.

“The centerpiece of the Galleria, Galleria I is a dumbbell-shaped wing that is three levels (two levels plus a “rink level”) and features the posh Neiman Marcus at one end. In addition, the complex features Westin Oaks Hotel and Post Oak Tower.

“Galleria II is the center portion of the mall. The floor plan resembles a cross. The north end goes toward the former Lord & Taylor area, the east side points toward Galleria I, and the south end either goes outside (1st level) or goes across a skywalk to Galleria III. There’s three levels in this section, and the third level (that goes above the 2nd level, it does not connect with the Rink Level) is carpeted and has banks and whatnot. The cool part about this section of the mall is the Westin Galleria Hotel rooms overlook the mall. I took a few photos inside Borders and the former Lord & Taylor space. Note the modern Florsheim!

“The west end goes into Saks Fifth Avenue and Galleria III. Galleria III is bizarre, because there’s no contiguous way to get from the main mall in the main building to Galleria III without going outside or walking through Saks. Galleria III is a plus-shaped wing with a few more shops and Macy’s at Sage. I really like this wing, because of its low traffic, strange layout, vacancies, and neon!

“The south end of the “cross” at Galleria II connects to the boomerang-shaped Galleria IV, which was dedicated in early 2003. This wing features Macy’s (the former Foley’s) and Nordstrom.

“Finally, the exteriors of the building, which include the detached Dillard’s across the street. Dillard’s isn’t connected to the Galleria and is not considered an anchor. Most of these pictures were from March 2008, but a few of them are from summer 2003.

59 Responses to “The Galleria; Houston, Texas”

I like the fountain in that one picture. It’s simple but chic and I like the ice rink as well. More malls should have ice rinks.

I must say something aobut the layout though. It’s looks kind of…..inconveinent. Like walking through a dept store to get to the other side of the mall and all the criss-crosses and shortage of bathrooms. Yikes I would’nt want to mall walk this place.

But it looks like a cool mall, any texan natives want to provide their opinions on this mall?

Yeah, I actually had a list of memories of this one. I also forgot to put the Dillard’s picture in (oops). And Florsheim left the mall for an extended period of time (they didn’t immediately move). And new evidence suggests that Frost Bros. probably WASN’T in the area I thought it was, but that’s unproven at best.

I’m approaching my 6th year in Houston and I’ve definitely made many visits to the Galleria. I’m sure frequent visitors to this website understand there are stores here that can almost pay their monthly rent with the sale of one item! This is where visitors from foreign countries come to spend their money and they definitely spend it.
Although it sounds strange, cutting through one store to get to the rest of the Galleria is not that bad. They have adequate signage and you get to see some expensive stuff that most of us will never afford.
As you can probably also guess, the Galleria is very popular during the summer months for two reasons. The first is air conditioning. The second is people watching. There are lots of people walking around with no bags or purchases in hand. They come out of the woodwork to just hang out on the weekends. But, it is by no means “dirty”. Just crowded.
What you can’t see in the photo of the fountain is that the water spouts are about 60 feet in the air. They also turn off and on in patterns. The kids spend lots of time watching this with their mouth open.
The Galleria IV addition was nice. It has a two level underground parking garage that is “kind of secret” but not really. I’ve never had any trouble parking there and getting right in. In fact, last X-mas eve I made a single last minute purchase and I parked right next to the escalator. Granted it was partially luck, but it wasn’t like I had to force my way in either. As a result, I made it in and out in 15 minutes.
Cheers to Jonah for submitting this one. If you haven’t visited, this is definitely something to check out.

Strange… if you check the mall map provided by the owner here: http://www.simon.com/mall/show_floorplan.aspx?ID=805 , it shows a pathway going through Saks to Galleria III. I assume this may have stayed open as a link when Marshall closed, making it even more strange.

When Marshall Field’s closed, there were temporary barriers placed inside the empty dept. store down the main walkway. There were only a few lights illuminated in the store which made the pathway rather eery. Once the construction began to update the store into the Saks it is now, it was rather noisy as well. There never was a point that you couldn’t access III through the Marshall Fields/Saks 5th Avenue.

I was visiting Houston in March this year when I went to visit the Galleria.
It was very large, but had a nice variety of stores. However, it may be a little different for outside visitors as myself. The mall becomes crowded quicky, easy to get lost, and lots of foreigners. I would suggest visiting, however I would bring along a friend. (it’s a bit overwhelming for just one!) I presumed that the Saks Fifth Avenue & Macy’s at Sage area was the original mall area due to lack of lush architecture found otherwise throughout the center. This area was very quite, and bleak. It wasn’t very easy to find, because once inside Saks Fifth Avenue, you will not see any signs leading to the other area. It appears that the Nordstrom & Macy’s addition is more organized, and easy to navigate than the rest of the center. This mall is truly a crown jewel of Texas, but it’s organization is still lacking. This of course coming from a person that didn’t lose direction in Mall Of America, but at The Galleria.

Just to clarify on Galleria III: The map’s pathway was added a few years ago to make the connection more clear. It was always there and just put in to show that you can access the mall from Saks. Galleria III is kind of weird, because it wasn’t in a well-trafficked area to begin with and further dropped off after Foley’s became Macy’s so there wasn’t much reason to go to the old Macy’s.

PRShack: I’m not entirely sure how the Saks was built around the Marshall Field’s link, either…

Several years ago my father went to a convention in Houston & stayed at the Galleria, I’m not sure wich hotel though. Anyway the story goes-the cab driver got the 2 hotels confused & pulled into the one on West Alabama Street instead of the one on West Himer Road. Understandable after all the mall is so huge & both hotels are under Westin’s ownership that I’m sure that it happens more often than one may realize.

*I believe that Macy’s is required to keep both Galleria stores open until a tenant is found for one of them. (I also remember that I once read that “Macy’s at Sage” is the location that the chain eventually hopes to close.) For the life of me, I am shocked that Federated opted not to convert one of the mall’s Macy’s stores into a Bloomingdale’s, given that (1) the Galleria is such an upscale mall and (2) there are currently zero Bloomingdale’s locations in Texas.

^^ Max, I have to agree with your suggestions about new profiles. It would be nice to here MORE about lively & thriving malls, then depressing malls that die everyday. Don’t get me wrong, I’m not asking for profiles for just new malls, I just mean a nice happy story would be nice once in a while. It would expand the thought on how some malls are, and have turned into real treasures.

Glad to see this blurb on the Galleria. True, the addition of Borders to the mix has greatly improved the attractiveness of this mall. However, be careful when visiting this mall. The Dillard’s has a history of sanctioning and even endorsing racism against African-Americans, up to and including on-site murder. Best to avoid crossing the street altogether and remaining inside the actual mall.

This has a few pictures, including the view from the other Macy’s (Foley’s) with the huge tower jutting out of the mall, and many other views you’ve never seen before, such as the entrance to the ice rink.

I recall reading that Macy’s at Sage was going to close & simon was looking for a residential partner to build a condo tower there. However for what ever reason the deal never happend & Macy’s remains open.

Yes, both Macy’s are the same. It’s a shame that they don’t put different things in each store ex: different departments. That way both would get equal attention. Otherwise, the Macy’s at Sage is basically pointless, and so is the empty corridor attached to that of & Saks Fifth Avenue.

Jeremy: Galleria III is not totally empty. Although the pictures do paint a gloomy picture, it still has several businesses plus Fox Sports Grill. The reason why everything looks depressing is because it was about half an hour till closing time at the mall, it was night, Fox Sports Grill wasn’t at peak hours, and I focused on the dead tenants and the dated facades.

I stayed at one of the Westins a few years ago–surprisingly cheap furnishings and not very well run. The mall, itself, was impressive in its size and noise level (the ice rink doesn’t help), but not with respect to shopping. The store selection seemed very generic, with few locally distinctive stores or mall rarities. It was a much less interesting experience than a trip to Lenox Square (I was living in Atlanta at the time), and Atlanta is a pretty generic place with narrowcasted retail. It also disappointed in relation to the similarly sized Tyson’s Corner. A Bloomie’s would make sense and its omission seems odd esp.given the demographics of the area and of the visitors that the mall attracts.

@Rich,
What a stoic observation on your part. I’m not sure where the people who link themselves to Atlanta are coming from on an intellectual basis. It always seems they are the ones to only see negative, but not, of course , in Atlanta. I know Lenox is very old (1959) and remodeled and enlarged many times but it still is just a straight line boring mall space. If not for the NM wing it would be totally unremarkable. It has no archetechture and the infrastructure around is woefully inadequate. If you could go to the Galleria and not see the many stores including international that are hard to find elsewhere then you probably just think you found your way through the whole mall. I am writing this years later as an exercise for myself because I realize others like me come along and read these things; so in effect I am updating . I hope that whole Atlanta thing has worked out for you but believe me it really isn’t the center of this universe. lol

I had to really use my imagination to see the inspiration of Galleria Vittorio Emanuele II. Anyway, this is a great mall. It was good to see such awesome photos. Glad they still have the ice rink.
Scott

um just what the heck do you mean by “that dillard’s has a history of sanctioning & even endorsing racism against African-Americans, up to and including on-site murder” is this just a texas thing, but i also remember that the dillard’s at chesterifeld towne centre in chesterfield county va also did that as well, but as i said can you clarafly that statement, i mean if that was true in malls from virginia to arizona there would be just tons of unsolved cases or is just a case of an urban legend growing to some sort of mass hysteria.

Also, I do think the mall needs another retenanting (though not a full remodel). Close down the Foley’s-Macy’s and convert that to a full Bloomingdales. Then remix the tenant mix by adding better tenants like Rich was complaining about.

Lol Galleria III looks awesome! It’s more dated than the others, kinda preserved. The Galleria at Fort Lauderdale in Florida is alot like that. Has a strange spot one hundred percent vacant for such an upscale mall.

I could never understand why Saks couldn’t have moved to the old Lord & Taylor spot so the old MF/Saks store could be converted into a concourse that would finally connect Galleria III to the rest of the Gallerias. I guess they love where they are and would never give the spot up. Which is why we’re not hearing about them taking over the Macy’s at Sage spot.

The Galleria is a really nice, and really interesting shopping complex. I worked in one of the office buildings there for a couple years, and used to always go to one of the pretzel places there and watch the figure skaters practice on the rink.

@Thomas, Sak’s owns that piece of real estate, Lord & Taylor did not. Neiman Marcus also owns their spot as well (execpt for expansions at the garden level that actually are in the adjacent office tower) and opened prior to the mall, which was added later.

Went to the mall today. Must make a correction: because of the large skylights, the mall is quite different-looking in the day.

Anyway…

Rainforest Café is opening in the former Bennigan’s.
Club Libby Lu is closed now (as the rest of the locations—yay! that place literally stunk! The bad news is it’s because of Saks’ cutting the flack)
The Galleria III area is still empty…even in the middle of the day. With Sharper Image gone, it’s still bad.
Turns out there is a way to avoid Saks to get into Galleria III…go to a side hallway, a covered (but not enclosed) walkway and an empty, creepy corridor. But it’s not really worth it, and it was mostly designed as parking access.
There’s a small aquarium too…well, that’s an ice rink, aquarium, and fountain…what malls have those features nowadays?
The worse nearby business is the Zone D’Erotica, behind Dillard’s. Tear that down!

@RD Jewish American an in her world, here are some other things what areas of Intrest were in the 1970-1990 re locators wish they had what was hinted in several tv mini series such ideas such as flip open cell phone and what was at most areas suport strip specialty retail back then 1970-1990 pro shops of frequent an TPC an Opens an such spring boards demolished and at such as nite spots such as Gerry Fanchers and like such localy Motels an famous haunts an small watering holes the colmorgrates wish the office staffs stop and get a nite caps an bar tenders lose lips an old unlisted numbers

Those pictures don’t do the Galleria any justice. I also think things worth mentioning are, after Simon purchased the mall and after The Galleria IV expansion opened, Simon has been focusing on creating a “Luxury Corridor” (street level between Neiman Marcus and Saks Fifth Avenue). A lot of stores relocated to Galleria IV to make room for upscale designer stores.

About Galleria 3, it is called the dead zone. I never saw a higher turn over in tenets. Fox is gone, Bice has been gone and Bio Silk has been empty over a year. The only long time survivors is the Tourist Shop and Miss Fields Cookies. All depend upon employees of Saks and Macey’s in G3.
Interestingly, a while back it was rumored that there would be condos in place of that Macey’s. Now that would be cool.

Galleria III hasn’t always been a “dead zone”. In its heyday (if I recall correctly) it housed a Crate & Barrel, Gap, Victorias Secret and Sharper Image among others. Its interesting to see that when the mall was remodeled in 2003, no real change was made to Galleria III, it still has the old hand rails, old escalators, and old flooring that the Galleria used before the expansion and renovation.
I hope that one day Macys at Galleria III will be converted to Bloomingdales and that whole section remodel to match the rest of the mall. South Coast Plaza opened a low foot traffic corridor that has a Louboutin, De La Renta, and Canali boutique maybe Galleria III can pull in some “rare” boutiques someday after the section is remodeled.

@Brad, I didn’t notice that Galleria III did not get remodeled, but now I notice! Cool! Sharper Image did stay (it was still open when I took pictures), and now Galleria III has gotten a little emptier because FOX Sports Grill has left.

@Brad, Your right! I was speaking from at least 03-09 hence, I worked there and saw it almost every day. I remember C&B before it moved to Highland Village. I even remember when Marshall Field’s was there and Romo Pizza would serv beer in those 20 oz. cups.
Bloomingdales sounds good and I would love to see more sound businesses to anchor it down. It does have retail potential.

I remember how before the remodel most stores had the same store front (Wolford still has it). I think it was mall policy for every store to use the same store front. A lot of local boutiques closed and were replaced with designer boutiques and chain stores.
The section where Borders is located is actually called Galleria V, its quite small but holds a number of stores and restaurants with outside entrances. As of now there is Galleria I ,II ,III ,IV,and V. The mall layout can be confusing at first. I think the reason why Saks Fifth Avenue has never moved to make Galleria III more accessible is because, its a flagship and is the second largest store, second only to the 5th Ave store in New York City.

“Saks Fifth Avenue, today announced its continued expansion into Texas with the opening of the Company’s second largest store, a 210,000 square foot full-line store in the Galleria Mall, in Houston, Texas”.http://www.encyclopedia.com/doc/1G1-19742240.html

Never been to Saks in Chicago, but have been to many others. The Houston store has a fur department, a restaurant, and Salon. It was recently renovated and added 10022-SHOE department and a Louis Vuitton boutique.

The reason why I said the old Lord & Taylor was officially called Galleria V is because I actually worked in the Galleria. Management at the Galleria would send letters updating tenants on construction and openings of stores, and the former Lord & Taylor was refered to as “Galleria V”.

@David, Saks at Chicago has their Mens dept. across the street and I don’t know if it is counted with the over all square footage (wasn’t in my region). Houston is second to NY as a single store. Boca Raton, Beverly Hills does out performs Houston, besides NY. However, since 05 Houston has the highest continual growth in the company and sometimes, in some departments, beats NY.

@Mitty, second or in this case Men’s stores are usually counted separately in annual reports. Also, Sak’s was in the area for a long time prior to opening in the old Marshall Field space. It was originally on post oak, then converted to an upscale mini mall, The Pavillion, which had Cartier, David Webb & Hermes to name a few. This property is now being redeveloped along with adjacent properties, called Blvd. Place.

I used to work for Sharper Image corporate and visited the Galleria store many times. Our store opened in September 1986 on the first floor of Galleria III in the space that later became Ralph Lauren, IIRC. We moved to the store that’s pictured in January 1996, and closed for good in the summer of 2008, along with the rest of the chain. Houston Galleria was always a very strong store for the company, and IMHO benefitted from the crushing lack of foot traffic in the ‘main’ section of the Galleria, allowing the salespeople to offer more personalized service, especially on high-end products. During the ‘good years’, in the late 1990’s, during the week leading up to Christmas, the Galleria store would have the highest per-store daily sales of any store in the chain, . The store never received a remodel, however. I don’t know the details for sure, but it seemed to me that they were always in discussions to move to Galleria I or II once Macy’s took over Foley’s and foot traffic dropped off significantly in 2006 (by then Sharper Image had lowered their price points in hopes of reversing the downward sales trend, and personalized service wasn’t so important anymore).

@Paul, When I was at Saks, Houston I loved Sharper Image. I wondered if they ever sold that Super Man. I liked SI sales people, no real pressure and when I wanted something I knew what I wanted (I walked past it 4 times a day) and made for a easy transaction.
I could imagine how well SI would do in the old FYE spot by the food court.
last time I droopped by the old SI location I saw some cheap/urban clothier. sad

Coming to this one a little late, but for those of you who were wondering where Frost Bros. was located in the Galleria: It was a pretty small two-level space close to the Westin Galleria hotel (in my memory it was about the size of the current Borders store at the Galleria, but I might be wrong about that). After Frost Bros. closed, the space was divided up; today, Eddie Bauer, Apple, the Daily Grill and whatever else is nearby occupy the space where Frost’s used to be.

The main thing I remember about the Frost Bros. store (I was pretty young when it was there) is that it had a very ’70s spiral staircase connecting the two floors.

So many memories from this mall from the late 80s and early 90s when I was a kid. I remember the Galleria 4 expansion, the Fila store lol, the huge Disney store, etc.
If I’m not mistaken Houstons FAO was directly across Westheimer from the Galleria.
Can anyone tell me if there ever was a Looney Tunes store in the mall? If so where was it located?.

I haven’t been to this mall in a while but grew up seeing it change. I love your pictures but a little day light would have made them better.

@Liam, yeah, I agree. But the day I took them in March 2008 it was the end of a long day. As you may see, the exterior was taken at early evening, but after exploring the mall (including eating dinner). By the time I got to Galleria IV, it was getting close to closing time. Sometime I’ll go again and take daytime pictures.

I have really enjoyed reading all of these posts on the Galleria. I have a special affection for this mall since we were both born in the same year and I am a native Houstonian. Here are some of my recollections.

1970’s:

— There used to be a cool ice cream parlor on the rink level. I think it was called Swensen’s but it may have had a different name originally. I went to several birthday parties there.

— There used to be 2 separate movie theaters. One was in the Galleria I and had only 2 screens as I recall. Then a second one was built when Galleria II opened. I saw Star Wars in the original Galleria theater.

— The original office building had gaudy gold mirrored windows I think they have been replaced.

1980’s:

— It was cool going to Lord & Taylor — they had all of the preppy essentials for the 80’s look.

— Marshall Field had a great candy counter. We used to buy the Frango mints to take home.

Galleria 3:

It’s really a shame that this part of the mall is so dead. When it opened in the 80’s it was the place to go. In fact many times I made trips to the Galleria and never left G3. I was walking through G3 the other day thinking about how it used to be. The first Eddie Bauer store in Houston was on the 1st floor next to Macy’s. On the third floor there was a bookstore called Brentano’s which I don’t think is there anymore. It was very upscale inside. I liked to go in there because they had tons of magazines and they weren’t wrapped in plastic. Not even the skin mags. I bought a lot of clothes over the years at the Macy’s. I’m not sure what really differentiates it from the one in Galleria 4. When I asked one of the employees she said that about 80% of the merchandise is the same between the two stores. The day I walked through G3 it was like a ghost town. I think the fox Sports Grill is closed although there seemed to be some activity inside the space.

The Galleria has had such an impact on Houston beyond just being a shopping mall. It became a tourist attraction and the place to go and shop or just hang out. It spurred the massive development of office buildings and other shopping centers around it. There would have been no Uptown Houston without The Galleria as its core. I hope The Galleria does survive and thrive unlike other malls in Houston that have declined or totally closed. I do hope they come up with a better use for the Galleria 3 space.

@David C., – The ice cream parlor was Farrell’s Ice Cream Parlour & Restaurant. Farrell’s also owned the restaurant next door called The Coquery. The Galleria forced them to rent more space than they needed so they opened two restaurants.

Baker: If the market has improved at all, it has only improved marginally. Retail activity is still lacking, but maybe now for the first time in a couple of years, retailers are dipping their toes back in the water and talking about adding or expanding stores.

Keener: Activity in Houston has increased slowly and steadily since 2009, but we are still at half of pre-recession volumes.

Goldstein: Investment sales have declined as financing has remained difficult for all investors, and retail properties remain challenging as a result of rental rate instability and market vacancy. Single tenant deals have dropped 40 percent over the past year. Texas based buyers have largely moved to the sidelines as velocity among these investors plunged 50 percent. Single-tenant cap rates for pending sales average in the mid 8 percent, and eighty of this year’s multi-tenant deals have closed in the past 6 months, up from a low velocity period in 2009. Average cap rates rose slightly to a mid to low 9 percent range. Well located grocery-anchored and power and regional centers are trading at a premium.

SCB: What retail leasing/development trends have surfaced during the economic downturn?

Ackerman: National tenants have used this opportunity to reposition their stores into better areas and renegotiate lower rents on renewals. Regional and local tenants are able to penetrate the market more easily; however tenant allowance has shrunk substantially. First-time franchisees and new businesses have seen a significant increase due to companies laying off employees, who in turn, began to seek their own startup businesses.

Jason Baker

Baker: Because of the dramatic reduction in new retail construction, many retailers have had a difficult time finding quality sites to pursue. Retailers are also taking a hard look at their existing store base and as leases come up they no longer automatically exercise their renewal option. Retailers are taking advantage of their human resources and real estate departments to more closely scrutinize leases as they come up and are doing their best to renegotiate their rent structure if justified by submarket conditions.

Keener: Leasing trends have been driven by the fewer healthy retailers leveraging the market to upgrade their locations and/or current lease terms. Landlords are focusing on existing tenant retention and aggressive new tenant recruitment through the offering of significantly greater lease concessions all while receiving less rent. Developers have been focused on restructuring existing debt and waiting for the key development drivers of favorable financing, key retailer demand for space and market-adjusted land pricing to come back into equilibrium.

Jerry Goldstein

Goldstein: Over the past year, nearly 1.1 million square feet of new retail space came online in Houston. The pace of deliveries has slowed drastically in 2010. Only 180,000 square feet was completed in the first half. Inventory expanded by a modest 0.3 percent. Developers continue to venture into outlying areas of Houston such as Fort Bend County and Montgomery County.

SCB: Have any major developments come online this year? Are any planned?

Baker: A project in the works that has been delayed for 5 years appears to be making some headway. It is called BLVD Place and is located at San Felipe at Post Oak Boulevard, and will be anchored by Whole Foods Market. Five years ago, Whole Foods Market had site plans for up to 90,000 square feet but they have gone back to the drawing board to open a store much closer to 46,000 square feet.

Keener: There have been a couple grocery-anchored projects of note, but nothing major. Of the 13 new developments that will actually be built from 2010 to 2013, 12 projects are grocery-anchored and the 13th is a second phase to an existing development. This really clarifies and underlines the consumers’ movement to value versus more discretionary spending. HEB, in particular, is making a major push during the next few years with at least six new units.

SCB: What submarkets are performing best?

Baker: Retailers are consistently interested in the Inner Loop area, including the Galleria area. Other areas doing well include The Woodlands and West Houston, including Katy and Cinco Ranch. Performance in these areas goes beyond retailer performance. These areas have consistent occupancy, sustainable rents, residential and general growth, and each has a live/work/play component that is working well.

Matt Keener

Keener: The core, high-income submarkets around the Inner Loop continue to do well due to the limited supply of space as well as stronger residential and daytime generators in the area. The high-supply suburban markets have seen significant vacancy increases, from 4 to 6 percent, but it is the low income submarkets that have experienced the worst deterioration due to higher levels of unemployment and lower consumer dollars in those areas.

SCB: What types of retail product are performing?

Ackerman: Neighborhood centers are the ones that have seen the most action. Grocery anchored will always be the strongest of the different flavors because customers need to eat. The worst hit are mid-block strip centers that are a dime-a-dozen in Houston.

Baker: Neighborhood centers, particularly grocery-anchored centers, are performing well. HEB and Kroger are very active in our market. They are holding sites for future development, are under construction in a number of locations and are rolling out new concepts.

Keener: It’s all about grocery-anchored community centers for the next 3 to 4 years. We won’t be hearing much if anything about the previously highly publicized lifestyle and mixed-use projects as luxury and non-essentials retailers re-tool and wait for the economy to fully recover.

Goldstein: New development is retailer driven and moving at a slow pace. Walmart continues its push into urban markets in Houston. Notably with their development plan in conjunction with the Ainbinder Development for an Interstate 10 West location in the Heights. Most lifestyle centers are on hold.

SCB: Have any major retailers entered/exited your market?

Ackerman: Many new restaurant franchisors like Qdoba, Fuzzy Taco, Tuti Fruti, Mooya Burger and Five Guys burgers have entered the market. Exiting are the non-essential tenants like Curves and Weight Watchers.

Baker: HEB is the dominant grocer in the Houston market. It is based in San Antonio, privately held and gaining market share in Houston. They recently developed a smaller grocery concept called Joe V’s, which predominantly caters to a more moderate-income customer.

Goldstein: Upscale restaurants like Eddie V’s and many more generic eating establishments are coming into the market.

SCB: What is vacancy like? Are rental rates holding steady?

Ackerman: Rates are all over the board. In high profile markets like the Galleria, rents are holding, however landlords are more skeptical about tenants’ financial backing more than in the past. In the suburban market, rents are down slightly and landlords are willing to take more risk on the financials of the tenants but are scaling back the tenant improvement allowance significantly.

Baker: With a market of our size, as much retail as we have here and relative to our historical vacancy rate, vacancy is at a surprisingly reasonable level — around 13 to 14 percent. Rents among junior anchors have probably dropped the farthest and the fastest; dependent upon the trade areas, some junior anchor rents are off 70 to 80 percent. However, there has been very little movement in rental rates for smaller spaces that are well located.

Keener: I don’t think there is any accurate data available as to the real vacancy rates in Houston right now. Most of companies that gather this data have us around 15 to 16 percent vacant across the MSA; however, as a broker who makes a living driving the city on a daily basis, I put the rate closer to 25 percent. Further, if economic vacancies are added to the actual vacancy rate, we are looking at fully one-third of all space in Houston being dark or not paying its contractual rents. Rents are not increasing anywhere, relative to pre-recession levels, and are holding steady in only a few exceptionally located and anchored projects. Otherwise, rents have fallen 10 to 15 percent on the better Class A product, and completely off the cliff in the rest of the projects.

SCB: How is the second half of 2010 performing compared to the first half? Is there more activity/optimism?

Ackerman: The beginning of the year was a holding pattern. Tenants took much longer to act because they didn’t know how to react to the market. The second half has been a lot more active while tenants are getting ready for the holiday season. The biggest factor on both accounts was information. Everyone wanted up-to-date market information throughout the process to ensure they were making the best decision.

Baker: The mood for the second half of the year may be a little better as some retailers seem more optimistic but the market is relatively comparable.

Keener: For the most part, it’s the same retailers expanding in the last half of 2010 as in the first half. What’s happening now is that these retailers are having much more difficulty in finding acceptable space as the targeted prime boxes, pads and end caps have now been fully absorbed while no new product has been added. This lack of supply of quality space will be the Achilles heel for real activity in the market going forward, but it will also act as the catalyst to ultimately move us back to a demand-driven market as reasonable financing slowly re-emerges.

Goldstein: Velocity has increased from the first half of the year but buyers remain cautious. Though there is an emphasis on distress opportunities there is still a demand for properties that are really stabilized with a rental structure that is not above actual market.

SCB: Do you believe things will turn around in your market in 2011? Why or why not?

Ackerman: I firmly believe the second half of 2011 will see a major jump in the market. The market will have been stabilized long enough for everyone to start the process. I believe the recovery will start, but at a very slow pace.

Baker: We are cautiously optimistic. There are still a lot of fundamental changes that need to occur and concern for weakness in some segments. As a result, some retailers are hesitant to expand aggressively. There is still concern over more vacancy hitting the market. Many retail segments, including fitness, books and office supplies are overcrowded and weak. There is a general concern that there may be more fallout. It’s too difficult to predict with any degree of certainty.

Keener: The turnaround has already occurred as anticlimactic as that sounds. The current sluggish market is our reality for the next few years. Barring another macroeconomic ambush, somewhere in the 2014 to 2015 range is when we’ll see the real inflection point in the market metrics that signals a return to the more robust and expansive retail market we became accustomed to over the last decade.

Goldstein: I expect more of the same in 2011 though more investors will want to buy properties because of the low interest rate environment for alternative investments. The velocity will not increase dramatically because of the availability of financing.

Saks Fifth Avenue To Relocate Its Flagship Store At The Houston Galleria. One Hundred Thousand Square Feet of Luxury Retailers to be added.

HOUSTON, Sept. 5, 2013 /PRNewswire-FirstCall/ — Simon Property Group, Inc. (NYSE: SPG), a global leader in retail real estate, announced today that Saks Fifth Avenue intends to open a brand new, state-of-the-art flagship store located immediately beside its existing store at the world-famous Houston Galleria. The Galleria is Houston’s premier shopping and tourist attraction, Texas’ largest shopping domain, and the nation’s fourth largest shopping center with more than 2.2 million square feet of retail space, four department stores and over 350 other stores that generate retail sales in excess of $1.25 billion. The Galleria is jointly owned by an affiliate of SPG and Institutional Mall Investors LLC (IMI).

The new two-story Saks Fifth Avenue store will have approximately 198,000 square feet of luxury shopping and will feature the best that Saks Fifth Avenue has to offer. The new store is scheduled to open in the fall of 2015. Until that time, Saks Fifth Avenue will continue to operate in its existing store in The Galleria so its many loyal customers do not experience a business interruption.

Upon the opening of the new Saks Fifth Avenue store, Simon will convert the existing Saks store into a new and vibrant two-level mall wing connecting the new Saks store, the existing Neiman Marcus store and luxury retailers. The new two-level expansion wing will include the addition of 35 luxury and other unique retailers as well as feature restaurants.

“The Houston Galleria is among the nation’s most productive shopping destinations with an impressive, industry-leading diverse tenant mix,” said David J. Contis, President, Simon Malls, “The commitment of Saks to build a new state-of-the-art store, coupled with the expansion of the mall will continue to enhance The Galleria’s appeal to Houstonians and tourists from around the globe.”

Steve Sadove, Chairman and Chief Executive Officer of Saks Incorporated, commented, “Houston has been a great market for Saks Fifth Avenue for nearly forty years, and we are so excited about relocating our flagship store to a new space within the iconic Houston Galleria. Our new store will allow us to even more beautifully showcase our distinctive merchandise selections, and of course, we will continue to provide our many loyal customers with Saks Fifth Avenue’s trademark exemplary service.”

Simon’s plans also include the addition of a multi-tenant building for a select group of luxury retailers along Westheimer Road and upgrades to the interior, exterior and parking decks of The Galleria. A new 300-unit, luxury residential high-rise adjacent to The Galleria at the corner of West Alabama and Sage is also being contemplated, which would provide residents with all of the latest amenities, an outdoor pool, and an indoor connection to The Galleria.

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